As of 2022, nearly half of all Americans expect to retire with debt. If you’re dealing with debt in retirement, having a clear understanding of your loans and a strong management plan means debt doesn’t have to derail your retirement goals. Here are some things to know about managing your debt so you can take control and be confident in your financial future.
Understand your debt
First, not all debt is created equal. Over the years you may have accumulated both “good debt” and “bad debt.”
“Good debt” generally refers to the money borrowed as an investment in yourself and your future, while “bad debt” is the money owed on depreciating assets, often at a high interest rate.
Prioritize your payments
Once you’ve identified which of your debts are good and which are bad, it’s important to prioritize your payments. Paying off loans with higher interest rates first means you will pay less over time. If you have the means, make more than the minimum payment on these high-interest loans.
You can also consider refinancing your loans for terms that better fit your retirement income and lifestyle. When you refinance, you may be able to get a lower rate and a more manageable payment schedule.
Make the most of your income
Once you’ve made a plan for managing your debt, smart financial choices can help keep you on track.
Downsize your dream home
If home prices are rising, you’d be wise to downsize rather than splurge on your dream retirement home. Plus, a smaller home could lower your utility bills and upkeep expenses in addition to lowered property taxes and mortgage payment.
Find supplemental income
If your retirement income doesn’t cover your debt payments and still afford you a comfortable lifestyle, you may want to consider finding a supplemental source of income. Marketing and monetizing your skills and expertise can be a fulfilling way to spend your time and bring in some extra cash.
This one might sound obvious, but being consistent with your payments is the most important thing you can do to manage your debt. If you’re feeling overwhelmed, it may be wise to seek a financial planner to help you build a personalized management strategy.
Visit lgfcu.org for more good ways to manage your money.